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Topic: Can I (legally) avoid GILTI by moving business to US but still LIVE in the UK? (Read 554 times)

I'm the director of UK limited company and I'm getting hit HARD by GILTI. I'm not sure I can even afford to keep my business open.

By chance (or luck?) I have a US client who currently pays me through UK corporation but of course could easily pay me instead into my US account if I wanted.

So with that in mind, would I be able to simplify my US tax liability and avoid all this GILTI drama by ‘moving’ my business to the US and earning US dollars — so effectively dissolve my UK company and have my US client start paying into my US bank account? I would still live in the UK, but my main income would be paid in $ in the US and I would just use a credit card or draw money now and again. I may still earn a bit here in the UK as a freelancer, but it would be nominal.

So I guess my question is --- is there any US tax rule that says I have to be living in the US to earn monies there as a self-employed person or business? I'm thinking I would have the same tax status/liability as a digital nomad?

Anyone here do something similar?

(As for my UK liability, I've already discussed this with my UK accountant and there are ways around this)

My accountant’s advice was essentially to run my company at a loss - I.e. pay out in salary any anticipated profit and simply suck up the salary tax exposure in the uk to avoid the double whammy of glti. I am probably oversimplifying and maybe even misunderstanding but the essence was avoid GLTI. The other option, which won’t necessarily work depending on the value of your company now and it’s structure, is to apply to treat the company as a discarded entity, i.e. have everything flow through directly to your personal US tax return. Again, not for the faint hearted. And not to be done on the basis of a post by an amateur!

Evidently, the Transition Tax is being discussed by the US Senate's Finance Committee.

"Groups representing American expatriate taxpayers in the offshore community stepped up their lobbying efforts earlier this week, as the US Senate’s Finance Committee prepared on Tuesday to hear testimony on the controversial Tax Cuts & Jobs Act (TCJA), which took effect on 1 January.

Much of the 2½ hours of testimony..... focused on what the legislation’s critics argued was its provision of tax cuts and disproportionate incentives to wealthy individuals and companies, such as makers of patented drugs, at the expense of the less-well-off and smaller businesses."........."The Transition Tax has been heavily criticised for the damage critics say it inflicts on Americans who own stakes of as little as 10% in overseas businesses, by requiring them to pay the tax on any “un-repatriated foreign earnings”, which has been set at 15.5% on cash and 8% on other assets."

I don't know the specifics about GILTI, but I ended up switching from having a UK Limited company to being a sole trader at the beginning of 2018. The US compliance requirements turned out to be a confusing, expensive mess for a small time freelancer like me, and had I received better advice when I moved here I never would've set up a Ltd. If your Limited Company is just you, it might be worth looking into being a sole trader.

Thanks all for the helpful advice and links! It is looking more and more likely that I’ll have to dissolve the UK company, this has turned into one huge rabbit hole.

I have another question for those of you who are directors of your UK LTD compan - When you file your US taxes, do you file based on your UK Ltd company year end or based on the US calendar year (Jan-Dec)? I was told by my accounting firm that my taxes have been wrongly filed (for the last 5 years!) Apparently, my previous accountant had filed my returns based on my UK company year end which the new accountant says she believes is wrong as it should be the US calendar year.

I want to be absolutely sure she is correct b/c this will be a HUGE expense for me to get my accounts redone by my UK accountant for the last 5 years!

My accountant’s advice was essentially to run my company at a loss - I.e. pay out in salary any anticipated profit and simply suck up the salary tax exposure in the uk to avoid the double whammy of glti. I am probably oversimplifying and maybe even misunderstanding but the essence was avoid GLTI. The other option, which won’t necessarily work depending on the value of your company now and it’s structure, is to apply to treat the company as a discarded entity, i.e. have everything flow through directly to your personal US tax return. Again, not for the faint hearted. And not to be done on the basis of a post by an amateur!

Thanks for this. It makes sense and I will look into it more. Out of curiosity - is your accountant based in the UK or US?

I don't know the specifics about GILTI, but I ended up switching from having a UK Limited company to being a sole trader at the beginning of 2018. The US compliance requirements turned out to be a confusing, expensive mess for a small time freelancer like me, and had I received better advice when I moved here I never would've set up a Ltd. If your Limited Company is just you, it might be worth looking into being a sole trader.

Thanks for the insight. It’s looking very likely this may be my only solution. How was your transition from a LTD company to sole trader? Besides striking off the company, is there anything else I should be aware of or that I need to do?

The best way to wind up your company depends mainly on two matters-• Whether the revenue reserves of the company exceeds £25,000.• Whether there is any goodwill in the business that is not personal goodwill. (There was a disincorporation relief for a five year period to 31 March 2018, but this was now gone).I can give some further details if you wish me to PM them to you.

Thanks for the insight. It’s looking very likely this may be my only solution. How was your transition from a LTD company to sole trader? Besides striking off the company, is there anything else I should be aware of or that I need to do?

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My company was very easy to close, since it was open under a year and earned a modest amount of money. I stopped doing businesses under the Ltd and closed my business bank account before December 31. Then I had my accountant do the accounts, filed those, and filled out and posted the form to close the company. In the meantime I registered with HMRC as self-employed to establish myself as a sole trader.

I might have one small annoying hitch with my 2018 US taxes, which is that my company didn't get technically get closed by companies house until after 2018. The Ltd didn't do any trading or hold any assets in 2018, but I'm concerned I'll have to fill out all the annoying US corporate tax compliance paperwork again just because it existed. Any tax experts know the answer to this one?

Not a problem. I am going to try to attend as well. The US side venture I’m a partner in wants to launch a UK subsidiary. I was following your conversation and this hit my inbox. Hopefully it’s helpful.